0:00:05 > 0:00:08There has never been a corporate bloodbath like it.
0:00:11 > 0:00:14On July the 2nd, 2012, the man who had just
0:00:14 > 0:00:19resigned as Chairman of Barclays was summoned to the Bank of England.
0:00:19 > 0:00:23They made him an offer he couldn't refuse.
0:00:23 > 0:00:26It was made very clear to us that the governor who had
0:00:26 > 0:00:30spoken to the chairman of the FSA and indeed had spoken to the
0:00:30 > 0:00:34Chancellor of the Exchequer was delivering us a message that the
0:00:34 > 0:00:38regulatory authorities no longer had confidence in our chief executive.
0:00:39 > 0:00:41The establishment had had enough.
0:00:43 > 0:00:45In the firing line was Bob Diamond -
0:00:45 > 0:00:48the most successful banker in Britain.
0:00:48 > 0:00:50Now, they wanted his scalp.
0:00:50 > 0:00:53A major cultural change was required at Barclays.
0:00:53 > 0:00:56It's a story that would have been inconceivable
0:00:56 > 0:00:58in the golden years before the crash.
0:00:58 > 0:01:01Bob Diamond, the president of Barclays, who's a Chelsea fan...
0:01:01 > 0:01:04Then, Bob Diamond was a star player on the national stage -
0:01:04 > 0:01:08the epitome of all that's celebrated about our banks.
0:01:08 > 0:01:12He was like Herbert Von Karajan at his very best
0:01:12 > 0:01:16and they all sang and they all danced to his tune.
0:01:16 > 0:01:20Once he was the figurehead who pledged after the crash
0:01:20 > 0:01:24to redeem the tarnished reputation of a broken industry.
0:01:25 > 0:01:29Today he's the symbol of all that's reviled about banking.
0:01:31 > 0:01:34The public can't really trust the banks on anything.
0:01:34 > 0:01:38They couldn't trust the banks to be essentially safe and secure
0:01:38 > 0:01:41and not collapse, they couldn't trust the banks to be honest
0:01:41 > 0:01:44when they sold products to them and so there is a real sense
0:01:44 > 0:01:48that, on almost every front, banks simply can't be trusted.
0:01:49 > 0:01:52Five years on, the economy is still on its knees...
0:01:54 > 0:01:58..and the reputation of our banks has been shredded by failure
0:01:58 > 0:02:00and scandal after scandal.
0:02:01 > 0:02:06So this series asks what do we want from our bankers?
0:02:06 > 0:02:08And can we ever trust them again?
0:02:26 > 0:02:29The City of London is another country.
0:02:29 > 0:02:31They do things differently here.
0:02:33 > 0:02:37The Lord Mayor's Parade has progressed through the City
0:02:37 > 0:02:39almost every year since 1215.
0:02:41 > 0:02:43On the surface it may seem
0:02:43 > 0:02:45that little has altered down the centuries
0:02:45 > 0:02:49but beneath the pomp and pageantry, for the last five years
0:02:49 > 0:02:53this has been a city beleaguered by crisis and controversy.
0:02:57 > 0:03:01So now the City's leaders are having to justify the role it plays
0:03:01 > 0:03:03more than ever.
0:03:03 > 0:03:10The City contributes some £63 billion of revenue for the Exchequer.
0:03:10 > 0:03:12That's something like 12% of the total,
0:03:12 > 0:03:17so £12 in every 100 that comes into the Exchequer's coffers
0:03:17 > 0:03:21is produced by financial and professional services.
0:03:22 > 0:03:25And that sums up the paradox about this place.
0:03:25 > 0:03:29We need its money but despair at the behaviour.
0:03:29 > 0:03:32Of course, there's more to the City - law, insurance
0:03:32 > 0:03:37and shipping are also here - but it's the banks that are under siege.
0:03:44 > 0:03:47And it's the bankers who've been blamed for plunging
0:03:47 > 0:03:50the country into debt and austerity.
0:03:50 > 0:03:51'Banking bail-out.
0:03:51 > 0:03:54'The government pours in £37 billion
0:03:54 > 0:03:57'to take huge stakes in three British banks.'
0:03:57 > 0:04:00'..and the taxpayer foots the massive bill.'
0:04:01 > 0:04:09After the crash of 2008, we spent £132 billion to bail the banks out.
0:04:09 > 0:04:12That's a third more than we spend a year on the NHS.
0:04:14 > 0:04:18Five years on, we still own huge chunks of Lloyds TSB
0:04:18 > 0:04:19and the RBS Group.
0:04:21 > 0:04:24So with public money propping up the system,
0:04:24 > 0:04:27people are in no mood to forgive and forget.
0:04:29 > 0:04:31They don't like the fact that the banks let them down,
0:04:31 > 0:04:33they don't like the fact that they had to bail them out
0:04:33 > 0:04:36and you put that on top of all the other day-to-day issues,
0:04:36 > 0:04:40you know, service is not very good and value is often disappointing and
0:04:40 > 0:04:43so on, and this is an industry that needs a lot of fixing,
0:04:43 > 0:04:47a lot of repairing in its relationship with its core customer base.
0:04:48 > 0:04:50We're left with tough choices.
0:04:50 > 0:04:55We want the City to be prudent and cautious, looking after our savings,
0:04:55 > 0:04:58but we need it to take risks and generate wealth for us all.
0:05:00 > 0:05:04Right now in some ways you have the worst of both worlds in the UK
0:05:04 > 0:05:07in that you have a public that doesn't like the idea of banks
0:05:07 > 0:05:10making money and, frankly, you have many politicians who
0:05:10 > 0:05:12don't like the idea of banks making money either.
0:05:12 > 0:05:15They're asking a completely impossible task for the banks -
0:05:15 > 0:05:19ie, to become profitable enterprises that don't need government support -
0:05:19 > 0:05:22and yet at the same time they're reacting with horror
0:05:22 > 0:05:24when the banks actually try to do that.
0:05:26 > 0:05:31Banks are different to commercial enterprises in other industries.
0:05:31 > 0:05:34We sit right at the heart of the economies where we do business.
0:05:34 > 0:05:39You can't have vibrant economies without a vibrant banking system
0:05:39 > 0:05:40and without vibrant economies
0:05:40 > 0:05:43you can't have stable and vibrant societies.
0:05:44 > 0:05:46Banks are different
0:05:46 > 0:05:49and that was the rationale for stepping in to rescue them.
0:05:49 > 0:05:53But now, with a new crisis of entirely their own making,
0:05:53 > 0:05:58banks' special status - some say special pleading - seems harder to stomach.
0:06:00 > 0:06:04There's no question that society now expects a much higher
0:06:04 > 0:06:06standard of behaviour and much higher
0:06:06 > 0:06:11standard of service of customers than, frankly, was the case in the
0:06:11 > 0:06:15period running up to the crisis and the early years of the crisis,
0:06:15 > 0:06:18and I think that banks just have to accept that.
0:06:18 > 0:06:24We also need, clearly, a change of values in the financial sector.
0:06:24 > 0:06:27Greed cannot be dominating everything
0:06:27 > 0:06:30because this is the ultimate recipe for catastrophe.
0:06:31 > 0:06:36It all comes down to that most fundamental of business principles -
0:06:36 > 0:06:38trust.
0:06:38 > 0:06:40Trust in finance is absolutely crucial.
0:06:40 > 0:06:44There's a reason why the word "credit" in credit markets
0:06:44 > 0:06:47comes from the Latin "credere" meaning "to believe"
0:06:47 > 0:06:51because actually finance without faith is worth nought.
0:06:51 > 0:06:54Credit markets without credit simply do not work.
0:06:56 > 0:07:00And nothing highlights the issue of trust more than the scandal
0:07:00 > 0:07:05about Libor, which came to light one morning at the end of June 2012.
0:07:15 > 0:07:19Libor is an obscure rate-setting mechanism that relates to the
0:07:19 > 0:07:21loans that banks make to each other.
0:07:21 > 0:07:26And understanding Libor is the key to understanding how banks
0:07:26 > 0:07:29and their culture have changed over the last 25 years.
0:07:31 > 0:07:35Because it was the Libor scandal, not the crash, which finally
0:07:35 > 0:07:39revealed the cynicism that corrupted the heart of the banking system.
0:07:40 > 0:07:45- NEWSREADER:- 'Barclays pays £290 million in penalties for trying to
0:07:45 > 0:07:47'manipulate lending rates..'
0:07:47 > 0:07:50DAVID CAMERON: 'This is a scandal. It's extremely serious.'
0:07:50 > 0:07:53- NEWS REPORT:- 'Barclays has admitted that a group
0:07:53 > 0:07:59'of traders lied about what it was costing the bank to borrow.'
0:07:59 > 0:08:02What has happened now, I think, partly as a result
0:08:02 > 0:08:05of the Libor scandal, is that the bankers have got it.
0:08:05 > 0:08:08The people running the banks now say,
0:08:08 > 0:08:12"Yep, we did mess up big-time. We damaged ourselves,
0:08:12 > 0:08:18"our industry and we damaged the economies of our host countries."
0:08:19 > 0:08:23Three leading banks - Barclays, the Royal Bank of Scotland
0:08:23 > 0:08:27and UBS - had been caught out by the regulators, abusing
0:08:27 > 0:08:31the fundamental trust which is at the centre of the banking system.
0:08:32 > 0:08:38We knew that this would be a big issue in, ah, publicity terms.
0:08:38 > 0:08:42I don't think any of us foresaw that it would be quite this big.
0:08:42 > 0:08:45Libor, I think, has crystallised a lot of views in the eyes
0:08:45 > 0:08:49of the public around things that were fundamentally wrong with the way
0:08:49 > 0:08:53in which the sector operated during that period, during the 2000s.
0:08:55 > 0:08:58Libor rates matter because almost everything
0:08:58 > 0:09:03we depend on the banks to do for us is in some way tied up with them.
0:09:03 > 0:09:06This is the mother of all reference rates.
0:09:06 > 0:09:10Some people might be familiar with reference rates in gold
0:09:10 > 0:09:14and in oil and, and some people even think of reference
0:09:14 > 0:09:17rates in housing markets where homes sell.
0:09:17 > 0:09:22But this is throughout our financial system and it affects
0:09:22 > 0:09:23all of us, really.
0:09:23 > 0:09:26Everything that you borrow, in effect, is influenced by Libor.
0:09:26 > 0:09:30Every credit card, every mortgage, every car loan.
0:09:30 > 0:09:33The London Inter-Bank Offered Rate, or Libor for short,
0:09:33 > 0:09:37was established in the 1980s when the old City values of trust
0:09:37 > 0:09:40and fair dealing still held good.
0:09:40 > 0:09:42Paul, what are Courtaulds', please?
0:09:42 > 0:09:44- 285.- Thank you very much.
0:09:44 > 0:09:48I think the first thing I was told when I arrived in the City of London
0:09:48 > 0:09:49was, "Listen to the stock exchange
0:09:49 > 0:09:52"and the word is, 'My word is my bond,'"
0:09:52 > 0:09:56and that was the motto and really it didn't matter what line of country
0:09:56 > 0:10:00or business you were in, that's what we attached ourselves to.
0:10:00 > 0:10:02If I said I've done it, it's done.
0:10:02 > 0:10:04So, when Libor was set up,
0:10:04 > 0:10:08no-one ever thought it needed to be formally regulated.
0:10:08 > 0:10:11And the key thing to understand is that the whole process is
0:10:11 > 0:10:15based on estimates rather than records of actual transactions.
0:10:17 > 0:10:21And the way it's set is that banks within London are supposed to
0:10:21 > 0:10:24submit to a central point the numbers at which they could lend
0:10:24 > 0:10:29money from each other at 11 o'clock on a specific day and the way
0:10:29 > 0:10:33it works is that 16 banks submit, the bottom four and the top four
0:10:33 > 0:10:35are taken out and the remaining eight are averaged,
0:10:35 > 0:10:37so it's quite a simple process.
0:10:37 > 0:10:40That process was designed to generate a set of interest rates
0:10:40 > 0:10:43in different currencies which have come to be
0:10:43 > 0:10:46used as a benchmark for trillions of pounds' worth of contracts
0:10:46 > 0:10:49and loans all around the world.
0:10:49 > 0:10:50Oi, Gary! Gary!
0:10:50 > 0:10:54The system is overseen by the British Bankers' Association.
0:10:54 > 0:10:57In fact, it's called BBA Libor.
0:10:58 > 0:11:04Libor is an index of the rates that banks lend to each other over
0:11:04 > 0:11:07a certain period and it's basically a measure of the real world
0:11:07 > 0:11:11interest rates that are out there that different banks can borrow at.
0:11:11 > 0:11:14The whole system depends on trust.
0:11:14 > 0:11:18Trust that bankers submit honest estimates
0:11:18 > 0:11:20and don't collude.
0:11:20 > 0:11:24Libor was supposed to be a very transparent
0:11:24 > 0:11:29and efficient benchmark for banks to quickly understand
0:11:29 > 0:11:33the level at which they could borrow and lend to and from each other.
0:11:33 > 0:11:35Nobody challenged it. Why would they?
0:11:35 > 0:11:38People trusted each other, that was the way the business was done
0:11:38 > 0:11:41and it worked very well because one assumed that life would
0:11:41 > 0:11:45go on without troubles for the rest of our lives.
0:11:45 > 0:11:48And for years Libor did seem to work well.
0:11:48 > 0:11:49In fact, as the landscape
0:11:49 > 0:11:53and character of the City changed beyond recognition during the '90s,
0:11:53 > 0:11:58Libor oiled the cogs of a booming machine - investment banking.
0:11:58 > 0:12:01All these banks came into London
0:12:01 > 0:12:03and the combination of that
0:12:03 > 0:12:07and this unprecedented period of economic growth meant that the
0:12:07 > 0:12:10volume and level of activity, particularly in investment banks,
0:12:10 > 0:12:12grew at a fantastic rate.
0:12:13 > 0:12:17Rules and regulations were designed to enable the City to grow.
0:12:17 > 0:12:21And both Conservative and New Labour governments appreciated
0:12:21 > 0:12:24the value - and tax revenue - that the bankers brought in.
0:12:26 > 0:12:31The financial sector was growing at an average of 6% a year -
0:12:31 > 0:12:33twice as fast as the wider economy.
0:12:34 > 0:12:37Lunch? Can't even spell it. It's got one syllable.
0:12:37 > 0:12:39But it virtually went out the window. There was
0:12:39 > 0:12:43so much money to be made, so much of an opportunity.
0:12:43 > 0:12:46I think there is a, probably a disturbing,
0:12:46 > 0:12:51sometimes admirable, aspect of human nature. We just enjoy a party
0:12:51 > 0:12:53and we had a hell of a party.
0:12:53 > 0:12:56We didn't always know we were having a party but we... I think
0:12:56 > 0:13:00the Irish knew they were having a party. They had the biggest party.
0:13:00 > 0:13:05But in the UK, you know, incomes were rising, property values
0:13:05 > 0:13:09were rising, so people were getting better off in terms of the homes
0:13:09 > 0:13:14they owned, the assets they had and the income they were receiving.
0:13:16 > 0:13:18Britain bought in to the dream
0:13:18 > 0:13:22and in those heady days the new banking world took shape.
0:13:22 > 0:13:26Barclays was particularly successful at embracing this new culture
0:13:26 > 0:13:30and promoting the easy credit so many of us wanted.
0:13:30 > 0:13:32- Here, your 4929.- Ingenious.
0:13:32 > 0:13:34What is it?
0:13:34 > 0:13:36- It's a Barclaycard, Latham.- Yes.
0:13:36 > 0:13:38And?
0:13:38 > 0:13:40Over here.
0:13:41 > 0:13:44- Ah, the mission.- No, the places that take Barclaycard.
0:13:46 > 0:13:47The story of Barclays
0:13:47 > 0:13:51epitomises the transformation that the City underwent.
0:13:51 > 0:13:55The bank, one of Britain's oldest, was founded in the 17th century
0:13:55 > 0:14:00by Quakers who believed in honesty, integrity and plain dealing.
0:14:02 > 0:14:06By the 1990s, Barclays was a leading high street bank with
0:14:06 > 0:14:1111 million customers and a modest investment division on the side.
0:14:12 > 0:14:16Then, in 1996, it hired a hot-shot from Wall Street who started work,
0:14:16 > 0:14:19appropriately enough, on the 4th of July.
0:14:20 > 0:14:24His name was Bob Diamond.
0:14:24 > 0:14:27The signing was a turning point for the bank.
0:14:27 > 0:14:32He was like Herbert Von Karajan at his very best with
0:14:32 > 0:14:35the Berliner Philharmoniker. There he was - except he didn't have white
0:14:35 > 0:14:39hair - and he orchestrated them and they all sang and they all danced to
0:14:39 > 0:14:43his tune and he did it brilliantly, absolutely fantastically.
0:14:48 > 0:14:49I think Bob Diamond
0:14:49 > 0:14:52is one of the most competitive people I've ever met.
0:14:52 > 0:14:55I'm told playing golf with him is nerve-racking.
0:14:55 > 0:14:57Very charismatic, very strong-minded.
0:14:57 > 0:15:00You know, the ultimate self-belief, I think.
0:15:00 > 0:15:03Powerful, respected by many,
0:15:03 > 0:15:07disliked by a few as well, obviously, as we've seen.
0:15:07 > 0:15:12He instituted widespread management and personnel changes
0:15:12 > 0:15:18and, in his eyes, upgraded a significant part of the talent pool
0:15:18 > 0:15:22by bringing in more like-minded American-style investment bankers.
0:15:22 > 0:15:25Diamond took the old investment operation,
0:15:25 > 0:15:30Barclays de Zoete Wedd, and re-launched it as Barclays Capital.
0:15:30 > 0:15:32It was a game-changer.
0:15:32 > 0:15:36I mean, no-one should forget that he came into Barclays Bank
0:15:36 > 0:15:39and took what was, frankly, a sleepy operation that was
0:15:39 > 0:15:44muddling its way through, and through some very savvy business decisions
0:15:44 > 0:15:47did remarkable things with the bank to really turn it into a pretty
0:15:47 > 0:15:51effective international investment bank specialised in fixed income.
0:15:54 > 0:15:59In the cold snap of February 2007, Barclays celebrated its most
0:15:59 > 0:16:05successful year ever - record profits of over £7 billion.
0:16:05 > 0:16:06The profits from Barclays Capital -
0:16:06 > 0:16:10the investment arm under Bob Diamond's leadership -
0:16:10 > 0:16:14had risen by over 300% in the previous six years.
0:16:14 > 0:16:17It was an extraordinary achievement.
0:16:19 > 0:16:23But five years later, it would be BarCap which would cause
0:16:23 > 0:16:28Diamond's downfall and threaten to destroy Barclays' reputation.
0:16:30 > 0:16:33Other banks were also in the throes of a cultural revolution.
0:16:33 > 0:16:37Among them, the rapidly expanding RBS Group,
0:16:37 > 0:16:41which by the early 2000s had almost 15 million customers.
0:16:41 > 0:16:46If you'd have told the founders of RBS of the kinds of activities
0:16:46 > 0:16:49and the breadth of activities and the billions and billions
0:16:49 > 0:16:53of pounds it would have had on its balance sheet at the height
0:16:53 > 0:16:57of its exciting times as a casino bank, they'd have been horrified.
0:17:00 > 0:17:04Under the ruthless leadership of Sir Fred Goodwin, RBS's profits
0:17:04 > 0:17:08almost trebled to £9 billion.
0:17:08 > 0:17:11As a young manager in the bank at the time, it felt really exciting.
0:17:11 > 0:17:15We were growing. We were very proud of seeing
0:17:15 > 0:17:17Sir Fred on the cover of magazines
0:17:17 > 0:17:20and reading about heading to being the sixth-biggest bank in the world.
0:17:20 > 0:17:23It was very exciting to be part of.
0:17:23 > 0:17:27As the power, influence and head offices of the bankers
0:17:27 > 0:17:30grew during the '90s and early 2000s,
0:17:30 > 0:17:33so too did the importance of Libor -
0:17:33 > 0:17:37that interest rate the bankers used when they lent money to each other.
0:17:39 > 0:17:41Although Libor is set in London,
0:17:41 > 0:17:44it's also used in America and all around the world.
0:17:44 > 0:17:47The growing reliance on Libor reinforced London's
0:17:47 > 0:17:50position at the heart of the global financial system.
0:17:52 > 0:17:54It's massive.
0:17:54 > 0:17:57There's 300 trillion of contracts based on it.
0:17:57 > 0:18:01Let me repeat it - it's 300 trillion of contracts.
0:18:01 > 0:18:03That's about six times the world economy,
0:18:03 > 0:18:08just to put it in orders of magnitude of dollars of contracts.
0:18:10 > 0:18:14And what happened to Libor became a metaphor for the City itself.
0:18:16 > 0:18:18It was assumed this obscure system,
0:18:18 > 0:18:22which underpinned all our lives, was running smoothly.
0:18:24 > 0:18:27And no-one saw fit to ask the bankers awkward questions,
0:18:27 > 0:18:31like were they actually submitting accurate estimates?
0:18:32 > 0:18:37The economy was booming, consumer credit was easy - too easy -
0:18:37 > 0:18:41and we all took it for granted the banks knew what they were doing.
0:18:41 > 0:18:44No-one wanted to spoil the party.
0:18:47 > 0:18:50Before the crisis, we the regulators -
0:18:50 > 0:18:54but the authorities more generally and the politicians who set
0:18:54 > 0:18:57the context within which the authorities operate -
0:18:57 > 0:19:00were in love with
0:19:00 > 0:19:03an ultra-free market point of view of the banking system
0:19:03 > 0:19:09where you can just let it rip and where we could rely on the
0:19:09 > 0:19:15forces of free market discipline to make it stable and good for society.
0:19:16 > 0:19:19But little by little, something was happening.
0:19:19 > 0:19:22As investment banks like Bob Diamond's BarCap grew and
0:19:22 > 0:19:26became more successful, something began to change in their DNA.
0:19:28 > 0:19:32At Barclays Capital as well as a large number of other
0:19:32 > 0:19:36investment banks we can now see, in hindsight, that there was
0:19:36 > 0:19:38a level of aggression, ambition,
0:19:38 > 0:19:44pay and possibly questionable behaviour in some areas that
0:19:44 > 0:19:49was out of scale, out of proportion, with where it should have been.
0:19:51 > 0:19:54Banking culture was changing.
0:19:54 > 0:19:58The narrow pursuit of profit became the overriding motive.
0:19:59 > 0:20:02What we lost sight of in this narrow pursuit of profit,
0:20:02 > 0:20:05is that actually banks have got a big, complex role in society -
0:20:05 > 0:20:08they're not just about making profit for themselves this year,
0:20:08 > 0:20:11they are about greasing the wheels of commerce.
0:20:11 > 0:20:14They need to be stabilisers and that is part of their duty
0:20:14 > 0:20:16and it's part of the return they get.
0:20:16 > 0:20:20The step change that happened in banking after roughly
0:20:20 > 0:20:24the year 2000 was that it became acceptable to make
0:20:24 > 0:20:29money from clients instead of trying to make money for clients.
0:20:30 > 0:20:34And it was what bankers did to Libor which finally revealed how
0:20:34 > 0:20:37entrenched this cultural shift had become.
0:20:43 > 0:20:47In the summer of 2007, as Britain was pre-occupied by unseasonal
0:20:47 > 0:20:52floods, in the City, rumours started to circulate about Libor.
0:20:55 > 0:20:58The word on the street was that some bankers were trying to
0:20:58 > 0:21:03manipulate the Libor rate by submitting misleading figures.
0:21:03 > 0:21:08Before long, these rumours reached well-connected journalists.
0:21:08 > 0:21:11We've been looking at Libor manipulation for several years.
0:21:11 > 0:21:15The thing we couldn't get our head around was
0:21:15 > 0:21:20if you can be one of 16 banks contributing to Libor, how much
0:21:20 > 0:21:24can you nudge it by and how much difference would that really make?
0:21:27 > 0:21:31And I started to hear stories that some banks were being
0:21:31 > 0:21:35so concerned about the pressure they were under that they were
0:21:35 > 0:21:39starting to influence the Libor rate quite deliberately.
0:21:39 > 0:21:43These rumours that Libor was being manipulated coincided with
0:21:43 > 0:21:45the beginning of the credit squeeze.
0:21:45 > 0:21:47- NEWS REPORT:- 'From early morning, savers have been pressing
0:21:47 > 0:21:50'at the doors of many Northern Rock branches,
0:21:50 > 0:21:52'waiting for the bank to open.'
0:21:52 > 0:21:55Northern Rock was tottering on the brink of collapse
0:21:55 > 0:21:58and some other banks were starting to find it hard to raise
0:21:58 > 0:22:01enough cash to meet their short-term needs.
0:22:01 > 0:22:04Banks feared if they submitted high but accurate estimates
0:22:04 > 0:22:07of the interest rates they would be charged if they borrowed
0:22:07 > 0:22:11money that day, it would look like they were a poor credit risk.
0:22:11 > 0:22:15So some banks were submitting estimates which were lower
0:22:15 > 0:22:16than they should have been.
0:22:17 > 0:22:19In finance,
0:22:19 > 0:22:23the perception of weakness can be as damaging as weakness itself.
0:22:24 > 0:22:29During the credit crisis, money was hard to get and particular banks
0:22:29 > 0:22:33were finding it harder than some of their neighbours to get money.
0:22:33 > 0:22:36And the way that would have shown up is in what the interest rate
0:22:36 > 0:22:38they were being charged was.
0:22:38 > 0:22:40Much the same as if you have a bad credit history and try
0:22:40 > 0:22:43and get a credit card, it's going to cost you more than someone
0:22:43 > 0:22:44with a good credit history.
0:22:44 > 0:22:47What the banks were able to do, though, because they made up
0:22:47 > 0:22:50their own rates, because they were responsible for saying, effectively,
0:22:50 > 0:22:54what their credit history and credit-worthiness was, they were lying.
0:22:54 > 0:22:57They were putting in rates that were lower than
0:22:57 > 0:23:01they actually thought it would cost them to borrow in the market,
0:23:01 > 0:23:03which is against the rules of how Libor is set.
0:23:03 > 0:23:08By early 2008, a volatile mix of London's investment banking boom,
0:23:08 > 0:23:11the narrow pursuit of profit and the minimal oversight
0:23:11 > 0:23:16of Libor would lead to repeated gaming of the system.
0:23:17 > 0:23:19And remember,
0:23:19 > 0:23:22there were no specific regulations relating to Libor.
0:23:22 > 0:23:27It was left up to the bankers' own trade association, the BBA,
0:23:27 > 0:23:31to oversee it, but, according to them, not to police it.
0:23:33 > 0:23:37Well, clearly, Libor should have been better regulated. There's no
0:23:37 > 0:23:40doubt about that. The BBA, though, is not a regulator. We don't
0:23:40 > 0:23:43have regulatory powers over the members. We can't fine our members.
0:23:45 > 0:23:49The statutory regulator was the Financial Services Authority,
0:23:49 > 0:23:51the FSA.
0:23:51 > 0:23:53Staff had heard the rumours, but, at that stage, didn't think
0:23:53 > 0:23:57they merited more thorough investigation.
0:23:57 > 0:24:00So there was an awful lot going on in the market which provided
0:24:00 > 0:24:03an explanation which did not necessarily lead you to
0:24:03 > 0:24:06a conclusion of deliberate attempts to manipulate.
0:24:09 > 0:24:12In America, things were different.
0:24:12 > 0:24:15Banking regulators there had pounced on the rumours
0:24:15 > 0:24:17and were actively investigating them.
0:24:17 > 0:24:21I read some articles from the Wall Street Journal
0:24:21 > 0:24:27and the Financial Times about Libor and
0:24:27 > 0:24:31had the head of our enforcement group come in, Steve Obie.
0:24:31 > 0:24:34And I said, "Steve, is this something we should be looking at?"
0:24:34 > 0:24:37And he said, "Good news, boss. We're already looking at it."
0:24:39 > 0:24:42One Barclays employee let slip to the team
0:24:42 > 0:24:46at the New York Federal Reserve that the bank was behaving dishonestly.
0:24:46 > 0:24:51"We know we're not posting an honest Libor.
0:24:51 > 0:24:53"We're doing it because if we didn't,
0:24:53 > 0:24:56"it draws unwanted attention on ourselves."
0:24:58 > 0:25:02In May 2008, the Americans tipped off the Bank of England
0:25:02 > 0:25:04with their concerns.
0:25:04 > 0:25:06They sent a memo suggesting procedures...
0:25:06 > 0:25:11"..to prevent accidental or deliberate Libor misreporting."
0:25:11 > 0:25:12But, incredibly,
0:25:12 > 0:25:17this memo didn't ring alarm bells in Threadneedle Street.
0:25:17 > 0:25:20What's undoubtedly the case is the Americans were on it
0:25:20 > 0:25:24back in 2008 and they told the regulators here,
0:25:24 > 0:25:27including Mervyn King, "You've got an issue here."
0:25:27 > 0:25:33And what seems to be case is that, by and large, nothing was done.
0:25:33 > 0:25:37So, on the eve of the financial crash, the bankers' trade body, the
0:25:37 > 0:25:41industry regulator and the Bank of England were all aware of concerns
0:25:41 > 0:25:45about possible rate-rigging but none of them acted decisively to stop it.
0:25:46 > 0:25:49Questions of trust and honesty about Libor
0:25:49 > 0:25:52didn't appear to be top of the agenda.
0:25:54 > 0:25:56By chance, in the same week at the end of May
0:25:56 > 0:26:00when the Americans flagged up to London their concerns
0:26:00 > 0:26:05about Libor, a Barclays executive gave an interview to Bloomberg TV.
0:26:05 > 0:26:09I think there was a general feeling at the time that something
0:26:09 > 0:26:11wasn't quite right with Libor.
0:26:11 > 0:26:14And I went down into one of our booths and I interviewed
0:26:14 > 0:26:18Tim Bond and I asked him a number of questions about Libor
0:26:18 > 0:26:19and about how it was set
0:26:19 > 0:26:22and if things were... if it could really be trusted.
0:26:22 > 0:26:26The candour of his answer took everyone by surprise.
0:26:27 > 0:26:34I would say from mid-to-late summer last year, really through to,
0:26:34 > 0:26:37I guess, last month, the rates that banks were
0:26:37 > 0:26:43posting in to the BBA became a little bit divorced from reality.
0:26:44 > 0:26:47No-one had said this on the record in a television interview.
0:26:47 > 0:26:54The impact was almost immediate in terms of huge media
0:26:54 > 0:26:56coverage of Libor, of Tim Bond
0:26:56 > 0:27:00and what was going on, and you had to have sympathy with Tim
0:27:00 > 0:27:05because he's not the person at fault here, he was just the messenger.
0:27:05 > 0:27:07So, the signs were all there,
0:27:07 > 0:27:10but no-one appeared to be taking decisive action.
0:27:14 > 0:27:16And then everything changed.
0:27:20 > 0:27:22The credit squeeze became a crunch...
0:27:24 > 0:27:26..and then a crash.
0:27:26 > 0:27:28It was September 2008.
0:27:39 > 0:27:42The heady days when investment bankers thought everything
0:27:42 > 0:27:47they touched would turn to gold were swept away.
0:27:47 > 0:27:51The RBS group was rescued with an emergency bail-out
0:27:51 > 0:27:53of £45 billion of taxpayers' money.
0:27:58 > 0:28:02I think the interesting thing when you look back now,
0:28:02 > 0:28:04you look back at that time and think,
0:28:04 > 0:28:09"Was I really not looking at things properly? And what did I miss?"
0:28:09 > 0:28:12And many of us have spent a lot of time thinking about
0:28:12 > 0:28:14what was it in the culture that meant
0:28:14 > 0:28:16that we didn't actually see what was happening.
0:28:18 > 0:28:21Barclays came out of the crisis better than most.
0:28:21 > 0:28:24It avoided having to accept a government bail-out.
0:28:24 > 0:28:28And when other buyers walked away from collapsed investment bank
0:28:28 > 0:28:33Lehman Brothers, Diamond snapped it up at a bargain-basement price
0:28:33 > 0:28:35It was a masterstroke.
0:28:35 > 0:28:38Diamond's reputation soared.
0:28:38 > 0:28:41History has shown it's been a fantastic acquisition,
0:28:41 > 0:28:43it's been very important strategically
0:28:43 > 0:28:46and it was done on very advantageous financial terms.
0:28:49 > 0:28:53In 2008, many gave bankers the benefit of the doubt when
0:28:53 > 0:28:58they said the crash was caused by global events beyond their control.
0:28:58 > 0:29:02But that was before we knew what was going on with Libor.
0:29:02 > 0:29:07When the story finally came out, it would raise difficult questions
0:29:07 > 0:29:10about whether our financial system can be trusted.
0:29:11 > 0:29:15In the post-crash chaos, the credit markets seized up.
0:29:17 > 0:29:19Banks stopped lending to each other.
0:29:19 > 0:29:23But they still had to submit a daily Libor estimate
0:29:23 > 0:29:25even though no-one was borrowing.
0:29:25 > 0:29:30And in that climate of fear, some banks rigged their submissions
0:29:30 > 0:29:34to make themselves look as financially sound as possible.
0:29:36 > 0:29:40The normal rules of engagement, in many ways, had been suspended
0:29:40 > 0:29:43and the fact that regulators and people at the Bank of England
0:29:43 > 0:29:46were paying close attention to what was happening in the markets,
0:29:46 > 0:29:49the fact that bank financiers themselves were saying
0:29:49 > 0:29:52"Well, we don't know what's happening but we're going to do our level best
0:29:52 > 0:29:54"to try and keep confidence going in the system,"
0:29:54 > 0:29:56I think is understandable.
0:29:56 > 0:29:59This deliberate understating of Libor estimates
0:29:59 > 0:30:02became known as low-balling.
0:30:02 > 0:30:05What low-balling was was people trying to keep their Libor
0:30:05 > 0:30:09submissions down or in the middle of the pack to ensure that they didn't
0:30:09 > 0:30:14stand out as someone that other banks didn't want to lend money to.
0:30:14 > 0:30:16Some argue that, at the height of the crisis,
0:30:16 > 0:30:18low-balling was justifiable.
0:30:20 > 0:30:25I don't regard that as a serious offence or even an offence at all.
0:30:25 > 0:30:28I think, at the time, the banks were not lending to each other,
0:30:28 > 0:30:31there barely was a Libor out there.
0:30:31 > 0:30:34The most important thing for the authorities
0:30:34 > 0:30:37and the banks was to avoid the panic, which was already very serious,
0:30:37 > 0:30:39getting worse than it was.
0:30:39 > 0:30:42And I think unnecessary fuss has been made about what may have
0:30:42 > 0:30:44happened in a few weeks in 2008.
0:30:44 > 0:30:47I've a lot of sympathy, then,
0:30:47 > 0:30:52with the editing of the Libor rates, shall we say.
0:30:52 > 0:30:55In America, they see things differently.
0:30:56 > 0:30:59I don't think it's good to lie to the public.
0:30:59 > 0:31:02I don't think it's particularly good if politicians do it,
0:31:02 > 0:31:06I don't think it's good if financial market participants do it.
0:31:06 > 0:31:10It's... Maybe it's just how my grandmother taught me.
0:31:10 > 0:31:12But it's also the law.
0:31:12 > 0:31:17It's not... It's not allowed under our regime.
0:31:17 > 0:31:19And why is it not allowed?
0:31:19 > 0:31:23Because others rely on these markets.
0:31:23 > 0:31:25Others rely on these reference rates.
0:31:27 > 0:31:30Bankers manipulating Libor submissions to try
0:31:30 > 0:31:33and keep the system afloat is one thing,
0:31:33 > 0:31:37but what about massaging the numbers purely for personal gain?
0:31:37 > 0:31:41By 2009, the British regulators were catching up with their American
0:31:41 > 0:31:45counterparts and, as they dug deep, they made an extraordinary
0:31:45 > 0:31:50discovery - cheating and lying at the heart of the banking system.
0:31:53 > 0:31:58What it illustrated was a group of people being paid a large
0:31:58 > 0:32:02amount of money, who's attitude to what they were doing was
0:32:02 > 0:32:07so deeply cynical, who clearly did not feel that they were doing
0:32:07 > 0:32:10something which had to be conducted in integrity
0:32:10 > 0:32:13and which was important, you know, to the real economy.
0:32:13 > 0:32:17They just thought it was a computer game where you had the same right
0:32:17 > 0:32:19to, as it were, cheat and kill the other guy
0:32:19 > 0:32:21as you have on a computer game.
0:32:22 > 0:32:27The FSA trawled through the data archives of Barclays, RBS
0:32:27 > 0:32:29and the Swiss bank, UBS.
0:32:33 > 0:32:36Among the millions of emails, instant messages and telephone
0:32:36 > 0:32:40conversations was evidence that traders from all three banks
0:32:40 > 0:32:48were trying to manipulate the market for their own financial advantage.
0:32:48 > 0:32:52"It's just amazing how Libor fixing can make you that much money.
0:32:52 > 0:32:54"It's a cartel now in London."
0:32:57 > 0:32:59"Dude, I owe you big time!
0:32:59 > 0:33:05"Come over one day after work and I'm opening a bottle of Bollinger."
0:33:05 > 0:33:08"mate yur getting bloody good at this libor game.
0:33:08 > 0:33:11"think of me when yur on yur yacht in monaco wont yu?"
0:33:14 > 0:33:17Traders were scheming to rig the Libor estimates
0:33:17 > 0:33:22submitted by banks in order to skew the resulting average rates
0:33:22 > 0:33:25and win themselves a bumper pay-out on their trades.
0:33:26 > 0:33:31It's a bit like a gambler, really. He has a series of bets out there
0:33:31 > 0:33:33and he wants certain things to happen.
0:33:33 > 0:33:37And so this swaps trader says, "I'd really like Libor to be high
0:33:37 > 0:33:43"because actually I'm a net recipient of Libor-related funds,
0:33:43 > 0:33:45"and therefore the higher Libor is,
0:33:45 > 0:33:47"the more money is coming into my book."
0:33:47 > 0:33:49The shifts in Libor are very small,
0:33:49 > 0:33:55it might be the difference between 2.70% and 2.71%.
0:33:55 > 0:33:58That change is called one basis point,
0:33:58 > 0:34:01which is one 100th of a percent
0:34:01 > 0:34:03and, to put it into perspective,
0:34:03 > 0:34:08if you have an investment of 1 billion running for
0:34:08 > 0:34:14one year and the interest rate is one basis point higher, you only make
0:34:14 > 0:34:20an extra 100,000. That's 100,000 of change on a 1 billion investment.
0:34:20 > 0:34:23Imagine if you could set your own credit card rate,
0:34:23 > 0:34:25and you had a couple of billion pounds on a credit card.
0:34:25 > 0:34:28You'd be very motivated to have a lower rate than a higher rate,
0:34:28 > 0:34:30if you could do that.
0:34:31 > 0:34:35"Pls go for 5.36 Libor again,
0:34:35 > 0:34:40"very important that the setting comes as high as possible. Thanks."
0:34:40 > 0:34:43I learnt about the traders' activities in one of the regular
0:34:43 > 0:34:46meetings that we had between the board committee and the lawyers
0:34:46 > 0:34:50who were acting on our behalf and I was sick to my stomach.
0:34:50 > 0:34:51Sick to my stomach,
0:34:51 > 0:34:55because I realised just what an appalling thing it was and
0:34:55 > 0:34:58I realised what a serious implication it would have for the bank.
0:34:58 > 0:35:00"Cld you do me a favour?
0:35:00 > 0:35:03"Would you mind moving your 6 month Libor up a bit today?
0:35:03 > 0:35:06"I have a gigantic fix."
0:35:06 > 0:35:09If you have a situation where a human being is going to have
0:35:09 > 0:35:14more money if he cheats, a lot of them will be tempted to cheat.
0:35:14 > 0:35:18And you have to have controls in place to make sure they don't.
0:35:19 > 0:35:23So what controls were meant to oversee Libor?
0:35:23 > 0:35:27First in line was the management of the banks. They failed.
0:35:27 > 0:35:31Second was the British Bankers' Association, here,
0:35:31 > 0:35:34which was in charge of overseeing the Libor rate.
0:35:34 > 0:35:36It failed too.
0:35:36 > 0:35:39I talked to people at the British Bankers' Association repeatedly,
0:35:39 > 0:35:43saying, "I'm hearing these stories. It just doesn't seem to make sense."
0:35:43 > 0:35:48And I was very, very strongly knocked back and I was told that
0:35:48 > 0:35:53my thoughts were ridiculous. I was told that I was scaremongering.
0:35:53 > 0:35:56I really had the full weight of the establishment and institutions
0:35:56 > 0:36:00come back on me trying to shut me up and stop me looking into it.
0:36:00 > 0:36:03- INTERVIEWER:- Do you think, with hindsight, it would have been
0:36:03 > 0:36:08better that Libor was more strictly regulated by the BBA
0:36:08 > 0:36:09when it was set up?
0:36:09 > 0:36:13Again, I can't talk about the past, partly because I wasn't involved,
0:36:13 > 0:36:16but also for a whole load of legal reasons.
0:36:16 > 0:36:18I can't talk about that activity.
0:36:18 > 0:36:22The BBA may not choose to speak about the Libor scandal now,
0:36:22 > 0:36:26but we do know what they've said in the past.
0:36:26 > 0:36:29As far back as 2008, a treasury manager at Barclays was
0:36:29 > 0:36:33talking about Libor with the BBA and he said,
0:36:33 > 0:36:37"We're clean, but we're dirty-clean, rather than clean-clean."
0:36:38 > 0:36:42The BBA responded, "No one's clean-clean."
0:36:46 > 0:36:50How is it that all the layers of control had failed to stop
0:36:50 > 0:36:51yet another City scandal?
0:36:53 > 0:36:57There is a legitimate criticism, I have to say, both of the FSA
0:36:57 > 0:36:59and the Bank of England, that they
0:36:59 > 0:37:05didn't respond to the fact that something funny was going on
0:37:05 > 0:37:08with Libor and say, "Is there something to be looked at there?"
0:37:08 > 0:37:13What they also both did was assume that the responsible
0:37:13 > 0:37:20authority for looking after this was the British Bankers' Association.
0:37:20 > 0:37:23CHEERING AND SHOUTING
0:37:28 > 0:37:31January the 1st, 2011.
0:37:31 > 0:37:35As the regulators continued their investigations into Libor,
0:37:35 > 0:37:37Bob Diamond had much to celebrate.
0:37:37 > 0:37:40- NEWS REPORT:- 'One of the world's highest-paid investment bankers,
0:37:40 > 0:37:43'Bob Diamond, is to become chief executive of Barclays Bank.'
0:37:43 > 0:37:47Reported to be worth £100 million, Diamond had big plans.
0:37:47 > 0:37:51In terms of stamping his authority, he effectively wanted to
0:37:51 > 0:37:54control things much more from the centre.
0:37:54 > 0:37:58Some leaders just prefer delegation and others... And nurturing
0:37:58 > 0:38:02and acting as consiglieres to their various regional or
0:38:02 > 0:38:06functional leaders and others prefer to have more control from the top.
0:38:06 > 0:38:10Bob preferred clearly to have more control from the top.
0:38:10 > 0:38:13He believed it was essential to remind the public of the vital
0:38:13 > 0:38:15role banks play in society
0:38:15 > 0:38:19and draw a line under their mistakes of the recent past.
0:38:20 > 0:38:23There was a period of remorse and apology for banks.
0:38:23 > 0:38:25I think that period needs to be over.
0:38:25 > 0:38:28Bob Diamond was one of the few who actually was willing to get
0:38:28 > 0:38:33out there, talk to the media, appear on platforms and actually
0:38:33 > 0:38:37simply present a face to the rest of the world of modern banking.
0:38:37 > 0:38:40And for that, frankly, he does deserve credit.
0:38:40 > 0:38:44Diamond realised that bankers' behaviour leading up to the crash
0:38:44 > 0:38:48was out of step with the public mood in the new age of austerity.
0:38:49 > 0:38:53In one influential speech he repeatedly referred to the
0:38:53 > 0:38:54importance of trust
0:38:54 > 0:38:58and argued that banking had to restore its moral compass.
0:38:59 > 0:39:04A senior economic adviser at the White House put a question to me.
0:39:04 > 0:39:07"Do you think banks can be good citizens?" he said.
0:39:07 > 0:39:11I wanted very much to answer yes, but before I could reply he said,
0:39:11 > 0:39:13"If the answer is yes,
0:39:13 > 0:39:17"think about that fact that no-one will believe you."
0:39:17 > 0:39:19I did think about that.
0:39:19 > 0:39:22I've thought about it quite a bit over the past three years.
0:39:22 > 0:39:26I want to use this opportunity tonight to share with you
0:39:26 > 0:39:30my views on why the answer to that question must be yes
0:39:30 > 0:39:35and that rebuilding trust requires banks to be better citizens.
0:39:35 > 0:39:37I believe in this passionately.
0:39:37 > 0:39:40Bob Diamond was at the pinnacle of his career.
0:39:40 > 0:39:45He was lauded as the most successful banker in London
0:39:45 > 0:39:48and he had taken the lead in articulating how banks needed
0:39:48 > 0:39:51to rehabilitate their role in society.
0:39:51 > 0:39:54But Diamond would never have the opportunity to
0:39:54 > 0:39:56implement his grand vision.
0:39:58 > 0:40:00- NEWS REPORT: - 'The bonus battle goes on.
0:40:00 > 0:40:02'Labour says RBS is just the beginning.'
0:40:02 > 0:40:04- NEWS REPORT:- 'The bonus backlash.
0:40:04 > 0:40:06'Politicians blame each other for allowing
0:40:06 > 0:40:08'the Royal Bank of Scotland pay-out.'
0:40:09 > 0:40:11The mood in Britain was hardening.
0:40:11 > 0:40:15As the recession continued, a rift was opening between the City
0:40:15 > 0:40:18and the rest of the country.
0:40:18 > 0:40:21- NEWS REPORT:- 'Newsbeat.- The boss of RBS, which is mostly owned
0:40:21 > 0:40:25'by the taxpayer, is getting a bonus of just under a million pounds.
0:40:25 > 0:40:26'The bank says he's earned it.'
0:40:26 > 0:40:29- NEWS REPORT:- 'We seem to have the banking industry
0:40:29 > 0:40:31'and then we have the real world.
0:40:31 > 0:40:34'The banking industry lives in a bubble.'
0:40:34 > 0:40:37- NEWS REPORT:- 'I've had to come to bed early today because I can't afford
0:40:37 > 0:40:40'to have my central heating on, so I'm in bed now early.'
0:40:40 > 0:40:43- NEWS REPORT:- 'Protesters who say politicians and bankers
0:40:43 > 0:40:44'are driven by corporate greed have
0:40:44 > 0:40:47'continued their demonstrations in cities around the world.
0:40:47 > 0:40:49'In London...'
0:40:49 > 0:40:52I would say that 2012 was a watershed year for the banks.
0:40:52 > 0:40:57The banks became the centre of the political universe, if you wish.
0:40:57 > 0:41:00Bashing the banks became something that was almost
0:41:00 > 0:41:02a strategic imperative for politicians -
0:41:02 > 0:41:04they had to be seen to be doing it.
0:41:04 > 0:41:06Everything just seemed to come together in one, just, huge
0:41:06 > 0:41:11bucket of bad news, bad press and opprobrium all round.
0:41:13 > 0:41:16And then at the end of June 2012,
0:41:16 > 0:41:21just as the country was gearing up for the Olympics,
0:41:21 > 0:41:25the public's anger finally came to a head.
0:41:25 > 0:41:28'Barclays bank has been fined nearly £300 million
0:41:28 > 0:41:30'by regulators in Britain and the United States...'
0:41:30 > 0:41:35'..for trying to manipulate the rates at which banks lend to each other.'
0:41:35 > 0:41:38The British and American regulators simultaneously
0:41:38 > 0:41:43published their reports into Libor fixing at Barclays.
0:41:43 > 0:41:45After about 25 minutes of reading this document,
0:41:45 > 0:41:49I concluded that it was absolutely shocking and I hadn't read
0:41:49 > 0:41:53anything like this in years. In fact, I could scarcely believe it.
0:41:53 > 0:41:58The report revealed that on at least 250 occasions over four years,
0:41:58 > 0:42:02Barclays staff had manipulated Libor and other rate submissions.
0:42:02 > 0:42:06The bank was fined £290 million.
0:42:07 > 0:42:11It was a public relations disaster.
0:42:11 > 0:42:13We obviously had to take a view before we made
0:42:13 > 0:42:16the announcement as to what the right reaction should be for us
0:42:16 > 0:42:21and we tried to measure the vile nature of the activity
0:42:21 > 0:42:24with its scale and produce a proportionate response.
0:42:24 > 0:42:26What happened was, when the announcement went out,
0:42:26 > 0:42:30the public reaction focused far more on the nature than the scale
0:42:30 > 0:42:32and I think the subsequent reaction
0:42:32 > 0:42:36did take us by surprise because it wasn't as we had judged it.
0:42:36 > 0:42:37We misjudged that.
0:42:39 > 0:42:41- NEWS:- 'Let's look at the papers.
0:42:41 > 0:42:43'Eight minutes past six and here is a question.
0:42:43 > 0:42:45'Who is the most hated man in Britain?
0:42:45 > 0:42:47'Well, step forward Bob Diamond of Barclays.
0:42:47 > 0:42:49'There's no doubt about it.
0:42:49 > 0:42:51'The papers go for him. Every single one of them.'
0:42:51 > 0:42:55Despite the firestorm of bad publicity engulfing his bank,
0:42:55 > 0:42:59Bob Diamond saw no reason to stand down.
0:42:59 > 0:43:02But other powerful forces including the Bank of England
0:43:02 > 0:43:06and the FSA disagreed.
0:43:06 > 0:43:09There could be no clearer symbol of the shift in power
0:43:09 > 0:43:10from the pre-crash era
0:43:10 > 0:43:14when bankers were seen as the most powerful figures in the City.
0:43:14 > 0:43:19Now it was the regulators who were determined to stamp their authority.
0:43:19 > 0:43:21I had a conversation with Marcus Agius,
0:43:21 > 0:43:29the Chairman of Barclays, on the evening of Friday June the 29th and
0:43:29 > 0:43:32what I said was that
0:43:32 > 0:43:36a major cultural change was required at Barclays.
0:43:36 > 0:43:42And that they needed to reflect on whether Bob Diamond would be
0:43:42 > 0:43:48capable of managing and driving through that culture change,
0:43:48 > 0:43:50but, even if they believed he was,
0:43:50 > 0:43:52whether the external world would believe that.
0:43:52 > 0:43:55The conversation was actually on a different subject
0:43:55 > 0:43:58and at the end of the conversation
0:43:58 > 0:44:03he did talk about the Libor situation, but actually
0:44:03 > 0:44:05that exchange was fairly brief
0:44:05 > 0:44:09and fairly narrow and
0:44:09 > 0:44:14I don't think it was quite as extensive as others may think.
0:44:16 > 0:44:18- NEWS REPORT:- 'Huge pressure now on Bob Diamond.
0:44:18 > 0:44:21'Lots of questions to be answered. Can he survive this?'
0:44:21 > 0:44:24Diamond continued to hold his ground.
0:44:24 > 0:44:27But what would chairman Marcus Agius decide to do?
0:44:27 > 0:44:31Outside my office at Barclays is a corridor
0:44:31 > 0:44:33and down the corridor are the portraits of former
0:44:33 > 0:44:36chairmen of Barclays and they go back through the centuries and
0:44:36 > 0:44:41I felt the pressure of that history bearing down on me and because
0:44:41 > 0:44:46the reputational hit that had happened over the Wednesday,
0:44:46 > 0:44:52Thursday, Friday had been so severe that some greater response
0:44:52 > 0:44:56was necessary and I felt, personally, it was the right thing to be done.
0:44:58 > 0:44:59I didn't enjoy it, of course not,
0:44:59 > 0:45:02but I thought it was the right thing to do.
0:45:02 > 0:45:04- NEWS REPORT:- 'What I've literally heard in the last few minutes
0:45:04 > 0:45:09'is that Marcus Agius, the chairman of Barclays, will be resigning.'
0:45:09 > 0:45:11Are you the fall guy?
0:45:11 > 0:45:13But his resignation wasn't enough.
0:45:13 > 0:45:16Should Bob Diamond resign as well?
0:45:16 > 0:45:17The public wanted more.
0:45:17 > 0:45:19As did the establishment.
0:45:20 > 0:45:24The message that the authorities - the FSA and the Bank of England -
0:45:24 > 0:45:28were giving to Barclays and particularly to Marcus Agius
0:45:28 > 0:45:31was that they had to face up to the reality,
0:45:31 > 0:45:33and the full reality, of the situation
0:45:33 > 0:45:38and that it was untenable to think the they could go on
0:45:38 > 0:45:42with the same management almost as if not much had happened.
0:45:44 > 0:45:50The next day, Monday the 2nd of July, the final act played out
0:45:50 > 0:45:53to the dismay of some and the satisfaction of others.
0:45:54 > 0:45:56I received a request to go
0:45:56 > 0:45:58and call on the governor of the Bank of England and to do so
0:45:58 > 0:46:00with my deputy chairman.
0:46:00 > 0:46:06And we met at six o'clock in the evening and,
0:46:06 > 0:46:14to put it simply, it was made very clear to us that the governor,
0:46:14 > 0:46:18who had spoken to the chairman of the FSA and indeed had spoken to the
0:46:18 > 0:46:22Chancellor of the Exchequer, was delivering us a message that the
0:46:22 > 0:46:27regulatory authorities no longer had confidence in our chief executive.
0:46:27 > 0:46:30A very, very strong message.
0:46:32 > 0:46:34- NEWS REPORT:- 'Breaking news story this morning.
0:46:34 > 0:46:36'Barclays Chief Executive Bob Diamond
0:46:36 > 0:46:39'has resigned with immediate effect.
0:46:39 > 0:46:42'That news just coming in in the last few minutes.'
0:46:42 > 0:46:46The paradox was that Bob Diamond had articulated how banking should
0:46:46 > 0:46:51change and he had the personality to force change through.
0:46:51 > 0:46:53But he could never disassociate
0:46:53 > 0:46:57himself from the culture that he had come to epitomise.
0:47:00 > 0:47:03When I heard that Bob Diamond had resigned, my first thought was,
0:47:03 > 0:47:06"How extraordinary," but also, "How sad."
0:47:06 > 0:47:09Because to the end of the day, it wasn't the financial crisis that
0:47:09 > 0:47:12tripped him up, it wasn't some flashy derivative, it was boring,
0:47:12 > 0:47:17stodgy old Libor deep within the operation. It's a tremendous irony.
0:47:17 > 0:47:21I certainly was surprised that that that the regulators felt
0:47:21 > 0:47:28the relationship between them and Bob was so poor and they thought he
0:47:28 > 0:47:35was being such a bad chief executive that they thought he ought to go.
0:47:35 > 0:47:37I mean, I was I was shocked at that.
0:47:37 > 0:47:42I mean, I just do not believe that regulators should do that.
0:47:42 > 0:47:47Not in the way that was done - very quickly. You know, I think
0:47:47 > 0:47:50boards of directors have the job of deciding who should be
0:47:50 > 0:47:51the chief executive.
0:47:51 > 0:47:55I mean Bob Diamond, let us be clear, did nothing which
0:47:55 > 0:48:00was against our rules or which we felt was enforceable against.
0:48:00 > 0:48:07But something went wrong with the culture of Barclays Investment Bank.
0:48:07 > 0:48:10And Bob Diamond wasn't just the head of it,
0:48:10 > 0:48:15he had been the head of it for a whole decade and indeed he had been
0:48:15 > 0:48:19closely identified with the whole build of that, the culture of it.
0:48:19 > 0:48:26The very fact that he was, as it were, the charismatic leader of that
0:48:26 > 0:48:31has to carry with it the implication that if something seriously
0:48:31 > 0:48:35goes wrong there, he is the person who will have to resign.
0:48:37 > 0:48:40Two other banks have so far been exposed as trying to
0:48:40 > 0:48:43manipulate Libor for their own benefit.
0:48:43 > 0:48:48The Libor fixing at RBS was much more pervasive than at Barclays
0:48:48 > 0:48:53and it was given a correspondingly bigger fine - £390 million.
0:48:54 > 0:48:58I think it's probably fair that RBS gets particular
0:48:58 > 0:49:04scrutiny on behaviour - things like Libor, other aspects of our
0:49:04 > 0:49:08business - because the taxpayer's got such a major stake. And we
0:49:08 > 0:49:12try to be as sensitive as we can to those sorts of things, inevitably.
0:49:12 > 0:49:15But no bank, whether it's owned by taxpayers or shareholders,
0:49:15 > 0:49:19wants to get involved in something like Libor. It's just unacceptable.
0:49:19 > 0:49:24But the most serious case so far involves the Swiss bank UBS.
0:49:24 > 0:49:27It showed a level of manipulation far in excess of what was
0:49:27 > 0:49:30discovered at Barclays and RBS.
0:49:30 > 0:49:33There was evidence of 11 managers being directly
0:49:33 > 0:49:35involved in the conspiracy.
0:49:35 > 0:49:39The bank was fined nearly £1 billion, but, unlike at Barclays,
0:49:39 > 0:49:42no board members have resigned over Libor.
0:49:42 > 0:49:45UBS declined to be interviewed.
0:49:47 > 0:49:50They were rigging this market for the best part of a decade.
0:49:50 > 0:49:56They had 40 or 50 people up to it. They had chat lines
0:49:56 > 0:50:02internally to inform one another what was going on and
0:50:02 > 0:50:08they had what were so-called wash trades specially designed. That is
0:50:08 > 0:50:11trades which were quite pointless except to reward a particular
0:50:11 > 0:50:16person who was participating in this, frankly, I would call it a fraud
0:50:16 > 0:50:22with commission, but which had no other purpose beyond doing that.
0:50:22 > 0:50:24All of this going on in a massive scale.
0:50:26 > 0:50:30In the City, the next generation of skyscrapers is taking shape.
0:50:33 > 0:50:35This 47-floor tower is rising over the site
0:50:35 > 0:50:37of the medieval Leadenhall Market.
0:50:40 > 0:50:44As the landscape changes, the banks say they're changing too.
0:50:45 > 0:50:48They promise they've learnt from their past mistakes,
0:50:48 > 0:50:51but can we trust them this time?
0:50:51 > 0:50:54Well, I think we have to be realistic that rebuilding
0:50:54 > 0:50:57trust in the banking industry is going to take a long time
0:50:57 > 0:51:01and it's a product of what banks do, not what they say.
0:51:01 > 0:51:05So, firstly, banks have to change their behaviour then people have
0:51:05 > 0:51:08to perceive that change then they have to internalise it and finally
0:51:08 > 0:51:11they have to give banks credit for it and I think that's going
0:51:11 > 0:51:14to take time, but it's, frankly, the responsibility of the industry and
0:51:14 > 0:51:19of Barclays to create that change in perception through what we do.
0:51:22 > 0:51:25I think we need our banks to be banks,
0:51:25 > 0:51:28if I can put it as crudely as that.
0:51:28 > 0:51:32I think we need our banks to behave properly. They, of course, need
0:51:32 > 0:51:36to make an appropriate return for their shareholders but they need to
0:51:36 > 0:51:40be strong financial institutions doing an absolutely critical job in
0:51:40 > 0:51:45making sure that their contribution to the economy is effective.
0:51:45 > 0:51:49There's no silver bullet to solving the problems of the banking sector
0:51:49 > 0:51:50and there never will be.
0:51:50 > 0:51:53We'll have to operate on many fronts -
0:51:53 > 0:51:57regulation, improving corporate governance and incentives and
0:51:57 > 0:52:02the bonus structure, getting really powerful sanctions in place so those
0:52:02 > 0:52:06who behave badly finally end up in an orange jump suit and end up in
0:52:06 > 0:52:10jail and we need to think carefully about the structure of banking.
0:52:13 > 0:52:16It was the Libor scandal that finally gave the impetus to
0:52:16 > 0:52:18reform the City.
0:52:18 > 0:52:21Now there are new leaders and new regulators.
0:52:21 > 0:52:24And soon there'll be new laws.
0:52:24 > 0:52:26But is that enough?
0:52:26 > 0:52:30We bailed the banks out and they let us down.
0:52:30 > 0:52:33Now City leaders believe bankers need to prove
0:52:33 > 0:52:36the days of tolerating lies and cheating are over.
0:52:38 > 0:52:41The ingenuity of the human mind is such that will you ever,
0:52:41 > 0:52:44ever devise a system which is completely foolproof to
0:52:44 > 0:52:47everyone trying to commit a fraud? I don't think so.
0:52:47 > 0:52:49It's much more important to create the right culture
0:52:49 > 0:52:52in the institutions and to, if there has been
0:52:52 > 0:52:55a lacking of the right approach to the business,
0:52:55 > 0:52:59then that's what we need to change going forward, rather than thinking
0:52:59 > 0:53:02that we can cover for every single eventuality in every situation.
0:53:07 > 0:53:11The taxpayers, the citizens, our fellow citizens in all
0:53:11 > 0:53:15our democracies, have discovered that the values, of the
0:53:15 > 0:53:20financial sector were very different were from what they knew and very
0:53:20 > 0:53:26different from what they consider appropriate in a modern society.
0:53:26 > 0:53:32I think that now the people would not accept, as they did
0:53:32 > 0:53:38in the past, to help considerably the financial sector.
0:53:38 > 0:53:42Because, again, they have a lost a large part of their confidence.
0:53:42 > 0:53:45A lot of people asked me why I took on a job which is not the easiest
0:53:45 > 0:53:48job in the world, representing probably the most tarnished and most
0:53:48 > 0:53:52unpopular industry in the country and a left-wing friend of mine said,
0:53:52 > 0:53:55"It's like defending the tobacco industry," and I said,
0:53:55 > 0:53:58"The difference is that, apart from the fact that banks
0:53:58 > 0:54:01"don't kill people, we actually need banks and we need
0:54:01 > 0:54:04"to restore trust in banks and it's essential not just for banks
0:54:04 > 0:54:06"but for the wider public and the UK economy as a whole
0:54:06 > 0:54:10"that banking gets out of this vicious scandal and banker bashing,
0:54:10 > 0:54:13"and is returned to a normal, healthy sector of the economy,
0:54:13 > 0:54:14"promoting economic growth
0:54:14 > 0:54:18"and ensuring there's a healthy, affluent society."
0:54:18 > 0:54:20But the future shape of the City
0:54:20 > 0:54:23isn't just up to those who work there.
0:54:23 > 0:54:26There are difficult questions which we all need to address -
0:54:26 > 0:54:29questions about what we really want from our banks.
0:54:31 > 0:54:34The crucial question that British politicians need to ask themselves -
0:54:34 > 0:54:39and, frankly, they ought to be asking the public too -
0:54:39 > 0:54:42is do we think that finance is there to be a utility
0:54:42 > 0:54:45and simply serve the rest of the economy
0:54:45 > 0:54:47or do we think that it should be a business
0:54:47 > 0:54:50and a profit-seeking enterprise in its own right?
0:54:50 > 0:54:53But if you want finance to be a utility then you're not
0:54:53 > 0:54:56going to have the profits and the dynamism and, frankly,
0:54:56 > 0:55:00the entrepreneurial drive that's made London so vibrant in recent years.
0:55:00 > 0:55:03And you're also not going to have a big part of the British
0:55:03 > 0:55:08economy that's been producing taxes and driving, pushing forward growth.
0:55:08 > 0:55:11However, if you say, "Well, actually, I do want finance to be
0:55:11 > 0:55:15"a profit-seeking exercise and to have London as an international
0:55:15 > 0:55:19"crossroads of global finance," then that comes with risks attached.
0:55:24 > 0:55:26As for Bob Diamond,
0:55:26 > 0:55:30after his resignation there was a final humiliating public appearance.
0:55:31 > 0:55:34- NEWS:- 'It promises to be a really interesting
0:55:34 > 0:55:37'and pretty explosive session tomorrow.
0:55:37 > 0:55:39'Certainly this will be the hottest ticket in town.'
0:55:40 > 0:55:44He was called before MPs for a hearing which had been arranged
0:55:44 > 0:55:46when he was still chief executive.
0:55:50 > 0:55:55It's 16 years ago today on July 4th 1996 that I began at Barclays,
0:55:55 > 0:55:58and it's been 16 years of just tremendous enjoyment.
0:56:00 > 0:56:04Bob Diamond had an answer for every question they threw at him -
0:56:04 > 0:56:07every question except one.
0:56:07 > 0:56:10I just wonder, Mr Diamond, if you could remind me
0:56:10 > 0:56:16of the three founding principles of the Quakers who set up Barclays?
0:56:19 > 0:56:23I could help and I could offer to tattoo them on your knuckles,
0:56:23 > 0:56:28if you want, because they are honesty, integrity and plain dealing.
0:56:30 > 0:56:33It does say everything, in my view, about the way in which
0:56:33 > 0:56:39banking standards and banking ethics and morality have changed.
0:56:39 > 0:56:43The bank manager who used to have to learn the founding
0:56:43 > 0:56:48principles of Quakerism that created Barclays and the man who brought the
0:56:48 > 0:56:52bank to its knees, who didn't have a clue what those principals were.
0:56:53 > 0:56:57The fallout from the Libor scandal continues.
0:57:08 > 0:57:12At least 12 more banks are being investigated by regulators
0:57:12 > 0:57:15either here or in the United States.
0:57:20 > 0:57:24And the Serious Fraud Office has launched a criminal investigation.
0:57:24 > 0:57:27As has the American Department of Justice.
0:57:32 > 0:57:35The much-criticised Financial Services Authority
0:57:35 > 0:57:37has been disbanded.
0:57:37 > 0:57:41The Financial Conduct Authority has been set up in its place.
0:57:43 > 0:57:46The British Bankers' Association will no longer be
0:57:46 > 0:57:48responsible for overseeing Libor.
0:57:52 > 0:57:55Reputations built up over decades have been shredded.
0:58:00 > 0:58:03It'll take a long time to clean up the mess that Libor left behind.
0:58:16 > 0:58:20Next time - how bankers are still taking disastrous risks
0:58:20 > 0:58:23as they hunt for profits in the fallout of the crash.
0:58:28 > 0:58:30How has the banking crisis affected you?
0:58:32 > 0:58:36Get your voice heard and join the debate at The Open University.
0:58:36 > 0:58:40Go to bbc.co.uk/bankers
0:58:40 > 0:58:43and follow the links to The Open University.
0:58:51 > 0:58:54Subtitles by Red Bee Media Ltd